Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3
Question:
Edwards Manufacturing Company (EMC) is considering replacing one machine with another. The old machine was purchased 3 years ago for an installed cost of $10,000. The firm is depreciating the machine under MACRS, using a 5-year recovery period. The new machine costs $24,000 and requires $2,000 in installation costs. The firm is subject to a 40% tax rate. In each of the following cases, calculate the initial investment for the replacement.
a. EMC sells the old machine for $11,000.
b. EMC sells the old machine for $7,000.
c. EMC sells the old machine for $2,900.
d. EMC sells the old machine for$1,500.
Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes TABLE 4.2 Percentage by recovery yea ycars 20% 32 19 12 12 10 ycars 10% 18 14 12 Recovcry ycar 3 ycars 33% 45 15 14% 25 18 12 4 10 100% 100% 100% 100% Totals "These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance depreciation using the half-year convention
Step by Step Answer:
Installed cost of new asset Cost of new asset Installation cost Total installed ...View the full answer
Principles Of Managerial Finance
ISBN: 978-0136119463
13th Edition
Authors: Lawrence J. Gitman, Chad J. Zutter
Related Video
Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.
Students also viewed these Finance questions
-
A nanotube forming asset was purchased 3 years ago for $240,000. It was just sold for $285,000. The asset was depreciated by the MACRS method with n = 5 years and has a current book value of $69,120....
-
An asset that was purchased 3 years ago for $100,000 is becoming obsolete faster than expected. The company thought the asset would last 5 years and that its book value would decrease by $20,000 each...
-
A video recording system was purchased 3 years ago at a cost of $30,000. A 5-year recovery period and DDB depreciation have been used to write off the basis. The system is to be replaced this year...
-
Isaiah wants to build a new shopping complex. Isaiah is afraid that once news gets out about his plans, the price of the land where he wants to build the shopping complex will increase in price....
-
Rosewater Corporation, a publicly traded company, reported a realized gain in the year ended April 30, 2015, on the sale of a long-term bond investment that was held to earn interest revenue. For the...
-
Use the following auto regressive equation to forecast the next value of the time series if the last observed value is 65. y = 625 1.3y t1
-
Five null hypotheses were tested, and the P-values were 0.24, 0.17, 0.03, 0.002, and 0.02. How many of the hypotheses are rejected at the = 0.05 level if the Bonferroni adjustment is made?
-
Pratt Corp. started the Year 2 accounting period with total assets of $30,000 cash, $12,000 of liabilities, and $5,000 of retained earnings. During the Year 2 accounting period, the Retained Earnings...
-
Give at least three (3) travel writing worthy topics about the dagupan city pangasinan you're currently living in. Respond in no more than three (3) sentences.
-
1. Compare and contrast the nature of the business market structure and demand relative to consumer market structure and demand for a specific P&G product. 2. For the same product, discuss the...
-
Cushing Corporation is considering the purchase of a new grading machine to replace the existing one. The existing machine was purchased 3 years ago at an installed cost of $20,000; it was being...
-
DuPree Coffee Roasters, Inc., wishes to expand and modernize its facilities. The installed cost of a proposed computer-controlled automatic-feed roaster will be $130,000. The firm has a chance to...
-
Using Figure 17.12 as a guide, write a mechanism for the BaeyerVilliger oxidation of cyclohexyl methyl ketone by peroxybenzoic acid.
-
Apple has a legendary ability to produce a steady stream of innovative new products and product improvements that are differentiated by design elegance and ease of use. Product innovation is in many...
-
In 2011, HP was churning on many fronts simultaneously. It had decided to abandon its tablet computer and was struggling with a decision about whether to exit its $40-billion-a-year personal computer...
-
What strategies might these enterprises use to strengthen their business models (a) a small pizzeria operating in a crowded college market, and (b) a detergent manufacturer seeking to unveil new...
-
When Howard Schultz founded Starbucks in 1987, he wanted to create a company that would genuinely care for the well-being of its employees. He had been very influenced by his memories of his father,...
-
Prior to its 2016 acquisition by Alaska Airlines, Virgin America was consistently rated as one of the top U.S. airlines. Founded in 2004, the airline served 20 destinations out of its main hub in San...
-
Indicate the profit that the monopolist shown in the graph below earns. Price MC ATC Quantity Demand
-
One of the significant and relevant accounts for this cycle is equipment. For this account, what would typically be the most relevant assertions for the auditor to consider? Why is it important for...
-
What is the most commonly used construction material in large buildings today, and what Earth materials are used in its preparation?
-
Molly Jasper and her sister, Caitlin Peters, got into the novelties business almost by accident. Molly, a talented sculptor, often made little figurines as gifts for friends. Occasionally, she and...
-
Stewart Industries sells its finished product for $9 per unit. Its fixed operating costs are $20,000, and the variable operating cost per unit is $5. a. Calculate the firms earnings before interest...
-
Grey Products has fixed operating costs of $380,000, variable operating costs of $16 per unit, and a selling price of $63.50 per unit. a. Calculate the operating breakeven point in units. b....
-
Sharif and Judith are married and purchased a vacation home together in Maine for $ 2 5 0 , 0 0 0 . Sharif died suddenly six months later and at that time the fair market value of the vacation home...
-
The learning rate is expected to be85%.Given that the first unit took5hours to complete,how many hours will the10 th unit take to make?How many hours will the25 th unit take to make? How many hours...
-
Indicate whether the following statements are "TRUE" or "FALSE" 1- Financial accounting is considered to be the backbone to top management. 2- Cost accounting identifies, summarizes and interprets...
Study smarter with the SolutionInn App